It was "normal" that debt was paid from income, but today it is different; in order to manage the crisis, money is printed; robbing citizens who already suffer from high taxes and even more by ever-increasing cost of living due to printing too much money. It now is said that this is "normal".
Once they do it long enough, people understand that this new normal has become "normal". Even giving away money has turned normal. The basic idea of Keynes, copied from the Old Testament, was taken from the Pharaoh who stored grain during the years of good harvests. When the harvest was bad, he shared it. He looked like a genius.
The European Central Bank (ECB) recently lent in February the last of two tranches, of together about 1 trillion euro’s to 800 banks. This is ‘new’ money made out of thin air that the banks get to borrow from the ECB at 1% for the next three years. And it’s why all those annoying fears about the EU banking system still remain on the course of collapse. The question is how exactly these banks get the money to pay off these loans at the end of the 3rd year, for that isn’t told. Guess for another round of money printing.
“The EU banking system is now addicted to loans from the ECB, and there is no turning back,” says Dan Amoss. “The ECB will have to roll over these LTRO [Long-Term Refinancing Operation] loans when they mature in three years, when the sclerotic EU economy is even smaller, unemployment is higher and high consumer prices erode living standards. Ultimately, the ECB will be forced to bail out its own imprudent actions. By printing euro’s to cover its own losses.”
“Investors, slowly, are going to see this scenario as inevitable, so we should prepare for the inflationary consequences ahead of the crowd.” Holding hard assets like gold and silver that can’t de printed, offers the best protection, while the long-term outlook for gold and silver are still upwards.
Global central banks will do everything in their power to keep Europe afloat. The guess is that the latest bailout – just like the previous bailout three months ago – will flop, and more liquidity will be injected into the system soon to follow.
“Taking central banks' fingers off the "print button" is akin to weaning heroin addicts from the needle.” As Rogers mentioned to the above, it's easy to keep the masses happy by just printing money. The ECB is letting banks get addicted to cheap loans. It is acting as the sole source of liquidity to prevent defaults for severely stressed banks that are making no loans and receiving no deposits. Worst of all, it is doing all of this while accepting inferior collateral and allowing accounting tricks to extract more loans.
ECB President Mario Draghi claims it will be a temporary emergency aid to solve a short-term problem. A lot of evidence works against his claim. By looking at the Trans-European Automated Real-time Gross settlement Express Transfer system (TARGET2) balances, which measure money flowing between countries, it is understood this cheap cash is being used in dangerous ways. Deposits in banks in Italy and Greece in particular simply don't exist. Banks traditionally use this money to fuel loans and large day-to-day transactions. Greek banks are already reporting that they cannot extend lines of credit to healthy and successful businesses, let alone a worker who has to take a pay cut and needs a car loan. Italy is in a similar situation, but it hasn't yet reached the same dangerous level as Greece. As an example: At the end of 2010, Italy owed the ECB €20 billion. That number ballooned to €180 billion by the end of 2011, all to cover withdrawals from citizens who can see the writing on the wall. Germany is the increasingly wary financier of this circus, now owns €500 billion of debt through TARGET2.
The ECB has responded to its critics by pointing out that collateral is required, but the quality of the collateral has gone down the drain. Questionable loans for housing developments and wind parks are accepted as collateral. Even Greek sovereign bonds are good enough to secure a massive loan too, isn’t that scary? Countries can even take a loan, to use it to buy their own country's sovereign bonds and pass them back as collateral for even more loans. Sounds even scarier!
ECB President Draghi has stated, "We have done enough," adding that, in the future, the focus would be on "tightening the requirements again." Wish him luck to do so. In the meantime the global currency market is nothing more than a F1 race to destruction.
Luckily gold and silver offers the necessary protection to conserve your savings and purchasing power.